Avoid These BIG Pension Mistakes That Could Cost Thousands!

I've seen these costly pension mistakes made time and again by people, but they are easy to avoid if you understand the facts.
In this video I explain 3 BIG retirement mistakes and why they will cost you.
TIMESTAMPS:
0:00 Start
1:37 Why You SHOULDN'T Try To Avoid The Lifetime Allowance Charge
4:24 Should You Stop Pension Payments When Over Lifetime Allowance?
6:38 Should You Stop Pensions To Fund ISAs?
LIFETIME ALLOWANCE EXPLAINED 👇👇👇
People often run scared from the lifetime allowance because of the excess tax charge they pay when their pensions exceed it.
But what is the pension lifetime allowance? Should you try to avoid it, and should you still pay into your pension if you're over the lifetime allowance? The answer for many people is yes, and this is fully explained in this video.
IS AN ISA BETTER THAN A PENSION? 🤔🤔🤔
Is an isa better than a sipp for retirement? Many people will say yes because you don't pay any tax on isa gains but you do pay income tax on sipp withdrawals. BUT THIS ISN'T THE WHOLE STORY!
I break down the simple maths in this video to find out will a sipp grow more than an isa.
People often find themselves on the wrong side of these pension and retirement planning mistakes, but good financial planning means understanding these considerations.
🔔🔔🔔 I am a UK based financial planner specialising in helping people achieve tax efficient retirement as early as possible.
If you want help with your retirement planning or financial planning in general, my weekly videos will help you, so make sure you subscribe and turn on notifications 🔔🔔🔔
Check out my previous LIFETIME ALLOWANCE video:
🎬 • Video 🎬
It's not too late if you're retirement planning after 40! Check out my OVER 40'S INVESTING video:
🎬 • Investing For Retireme... 🎬
*** DISCLAIMER ***
The content in this video is provided for information and entertainment purposes. It should not be construed as direct or indirect financial advice. You must throughly research any potential financial or investment decision and fully understand the risks before taking it. If in doubt, you should seek individual advice from a professional adviser.
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[@TheCompoundingInvestor]

Thanks Chris another great video.

[@chrisbourne-retirementplanner]

Thank you glad you thought so! 👍🏼

[@iQinvesting]

Brilliant video as always!

[@chrisbourne-retirementplanner]

Thank you mate! Appreciate you watching 👍🏼

[@pataleno]

Great video. I’ve been maxing my isa out whilst paying less into a sipp. I need to work the numbers out as I may be making one of these mistakes. I’m a 40 % tax payer. Hmm.

[@chrisbourne-retirementplanner]

I’m glad it’s given you food for thought Pat! That’s what I aim to do with these vids.

[@vincenzoonorato1]

Thank Chris always great advice 👏🌈💥

[@chrisbourne-retirementplanner]

Thanks Vincenzo that’s good of you to say! 👍🏼

[@presterjohn71]

Now I am in a quandary. I'm 55 and want to retire at 65 I have a decent DB pension from work with 16 years in it plus £65k in a SIPP made up of old small pensions. I have been banging money into an S&S ISA this year rather than in the SIPP as I was going to use it to knock a year off work with the ISA and then knock another year off work with the SIPP assuming that would be the easiest to sort out route. I don't pay 40% tax so assumed the advantage of the SIPP was lessened to the point where it was six of one and half a dozen of the other when it came to the final totals that I could potentially achieve.

[@chrisbourne-retirementplanner]

Well individual circumstances are all different John and there are many variables to consider. That’s why good advice can often be so important.

[@cherryhouse8364]

Can you give a video regarding SIP (Systematic Investment Plan)? Such as Bonds, Mutual funds, corporate fixed deposits, investing on insurance companies.

[@chrisbourne-retirementplanner]

Hi Cherry. What would you like to know? The differences between these options?

[@cherryhouse8364]

@@chrisbourne-retirementplanner I would like to know the difference in the interest rates, pros and cons.

[@joelhaspel]

I see a lot on Lifetime pension limit but what about when you are limited to £4K pension per year. does it pay to put the full amount + company contribution when you are paying 45-55% tax on it and then taxed again when you retire. There is value but I could be investing the tax amount in stocks or something.

[@chrisbourne-retirementplanner]

Hi Joel. Yes there are less videos made for people in this territory because as you can imagine, there are proportionately few people who are affected by the tapered annual allowance rules. I do have a number of clients affected by this and the answer to your question is yes, it can still be sensible to make the contribution because you will still get tax relief on it and you can buy stocks through your pension of course. The bigger question is… ‘is it worth it?!’ A lot of people who earn above £312k a year can’t see the point in putting a mere £4k into a pension because they don’t see the end reward as sufficient. We usually have to look at other avenues to maximise growth and tax efficiency.

[@Willsmith-q2v]

you are a class act buddy.........I always look forward to your latest content....thanks Chris

[@chrisbourne-retirementplanner]

Always good to get an encouraging word, thanks Will 👍🏼

[@alexbright7735]

I would love to pay the life time allowance tax one day. let's hope for growth over the next 30 years

[@chrisbourne-retirementplanner]

It’s a nice problem to have as they say Alex.

[@PaulDurbin1969]

I earn £190000 per year so am not subject to any taper and I pay additional rate. What is the maximum net pension contribution I can make to SIPP that is relief at source this year.

[@chrisbourne-retirementplanner]

Hi Paul. It depends on how much you’ve contributed this tax year so far and in the three years prior to this one. Assuming that SIPP has been open during all of those tax years, based on your earnings, your maximum contribution would be £160,000 less the contributions you’ve made in all of those years. Please note, this assumes that the £190,000 earnings are salary or self employed earnings on which income tax is paid (dividends and things like rental income can’t be used to substantiate pension contributions).

[@PaulDurbin1969]

Thanks Chris

[@bengunns]

What should we do to guard our Pensions against inflation Chris.

[@chrisbourne-retirementplanner]

Hi Ben. The only protection against inflation long term is to invest into assets that have the potential to outstrip it. Taking away the risk of volatility exposes you to the risk of inflation. There always needs to be a sensible balance between stable holdings from which to take withdrawals, and risk assets to provide inflation beating returns.

[@bengunns]

@@chrisbourne-retirementplanner Thankyou for your feedback Chris, Top man. love your videos and info.

[@nickfifield1]

Great video . However , you keep referencing 25% charge when crystallising , when i expect many of us middle earners will end up paying a further 20 or even 40% income tax on the drawdown . Which begs the question , at what point does it make sense to pay the 55% tax. Btw , I fully expect governments to screw us on LTA , reducing it in the future to get more tax.

[@chrisbourne-retirementplanner]

Hi Nick. As most people can choose their level of withdrawal, the majority keep themselves basic rate in retirement, but I do have exceptions to that of course. Some people have need for much higher income due to lifestyle requirements, and some have high guaranteed incomes from defined benefit schemes. However, in the majority of cases, pensioners withdraw at basic rate. A good number of my clients only take taxable withdrawals within the personal allowance plus tax free lump sum, in which case they do only pay 25%. There are therefore extremely few instances when I would recommend taking excess as a lump sum and paying 55% on it… probably only if somebody was desperate for the cash and had no other way of getting it!

[@davidmoir2269]

Are you forced to buy an annuity at a certain age or does it depend on what type of pension scheme ur in

[@chrisbourne-retirementplanner]

Hi David. Sorry for the delay in responding to this. There is no longer a requirement to annuitise a personal pension arrangement at a specific age. You can remain in drawdown for life.

[@davidmoir2269]

Thanks for your reply and it means I will work a year longer as previously planned, But I have another question if I am not earning when I stop working I believe I can count dividend income towards my personal allowance and the next £2,000 tax free too, is this correct and if so it complicates what to take from flexi access drawdown

[@richardharnwell3331]

Thanks for another great video. If approaching the LTA, wouldn’t it make sense to crystallise the pension so far, to delay hitting the LTA (because the growth in the now crystallised pot won’t count towards it)?

[@chrisbourne-retirementplanner]

Unfortunately that usually doesn’t work Richard because the growth on funds left in drawdown is later tested against the lifetime allowance again.

[@russtaylor8367]

This is similar to the question I just posted Richard. I may be misunderstanding the mechanics but spending everything over the LTA after 100% crystallisation up until 75 where it is assessed again for LTA seems a potential approach.

[@chrisbourne-retirementplanner]

Yes but you need to accept the income tax implications of withdrawing all the growth.

[@21900cdn]

Hi Chris. I intend to increase my pension contributions. Can you advise on the benefits of workplace auto-enrolment v private pensions. Many thanks. Great channel.

[@chrisbourne-retirementplanner]

Hi there. Thank you! Both options will provide similar tax advantages. It's always sensible to take a matched contribution from an employer into a workplace scheme. Some employers are more generous than others, but all have to contribute at least 3% of reference earnings into a pension. Many employers will insist this has to be done via their chosen workplace scheme, so if that is the case it would be unwise to opt out. The benefit of private pensions, which can be used in addition to workplace schemes is greater choice of investment options, flexibility to take benefits at a different time to your workplace scheme and potentially lower costs (although most workplace schemes are also fairly low cost).

[@simony2801]

I understand what you say about not limiting your investment growth if you are in excess of the lta, but by chasing higher growth you are also taking more investment risk which of course might not pay off, why take higher investment risks to give the profits to the government?

[@chrisbourne-retirementplanner]

But by the same logic Simon, if you get less, the government would get less too. If you are happy with what you’ve got and really don’t want any more, then stopping your pension from growing is fine, but few people would see the sense in that. We know that risk diminishes with time... If you don’t need to crystallise your pension benefits for a long time and wouldn’t be forced into selling in a downturn, it is quite likely you’ll be able to withstand volatility and are far more likely to gain than lose.

[@shreeradhe5378]

Brilliant video! Really strange how on the face of it, it appears you'd be paying more in tax. So important to do the maths first before jumping to conclusions. We're making full use of our tax allowances by taking only our PA and PCLS, then substituting income from a discretionary bond. Helping our children to save in Lifetime ISAs and SIPPS so they can use the same strategy in the future and get FIRE. Big thanks to you Chris for your ever inspiring videos.

[@chrisbourne-retirementplanner]

It’s great to hear you’re making good use of the allowances and wrappers available to you Shree. I’m sure your kids will be very grateful! Thank you as always for your comment.

[@roblowry9457]

Another great video - thanks. I will get a DB pension, so the monthly salary from this I guess will use up the tax free amount. Will be running a SIPP along side this. Any thoughts please?

[@chrisbourne-retirementplanner]

Hi Rob. Yes the DB scheme pension will use up all or some of your PA, depending on how much it is. SIPP withdrawals can still be somewhat tax efficient by utilising tax free lump sum as part of your income.

[@chrisdaviesguitar]

If I give up work - simply because I've had enough lol. Can I still pay into my pension if I am not working?

[@chrisbourne-retirementplanner]

Hi Chris. Yes you can, but the maximum you can pay in without relevant earnings is £3,600 gross per tax year (£2,880 net).

[@chrisdaviesguitar]

@@chrisbourne-retirementplanner I am 63 now and thinking of jacking it in next year, I don;t think one year will make much difference, do you?

[@trouty00]

Hi Chris, love the content, two questions for you which I think i know the answer but would like an expert opinion, am I right in thinking you can only take up to 25% of the LTA tax free. for example if you had a 2 Million pound pot, you would still only be able to take ~250K tax free. (~25% of current LTA), notwithstanding the way the LTA % rules work and not be able to take 500K tax free. And secondly does this tax free income get measured at all when you draw/earn other income. i.e if you took £10K tax free does this mean you only have ~2.5K of tax free allowance or do you still have the full 12.5K?

[@chrisbourne-retirementplanner]

Hi Stu. Yes you’re right in thinking your tax free lump sum is limited to 25% of the LTA. Tax free lump sum doesn’t use up any of your Personal Allowance or any other allowance though.

[@iceman321ca5]

Hi Chris. Regarding the scenario described at 4:30, would really appreciate your advice. If person X has a base salary just below £100K per year and she's already received a cash bonus which made her total yearly compensation rise to £120K (so exactly in the £100K - £125 tax trap), can she still transfer the cash bonus already received in her bank account to her pension fund and therefore avoid the tax trap?

[@chrisbourne-retirementplanner]

Hi there. Thanks for your message! Yes as long as the pension contribution is made in the same tax year as the bonus is paid.

[@iceman321ca5]

@@chrisbourne-retirementplanner thank you very much indeed! 🙌

[@minimad8793]

Hi chris. Just curious. Over your 17 year tenure as a financial planner, do you have any good luck stories of people you have helped to become financially free? doesn't have to be specific but like a generic template of financial freedom. Just to get some perspective if people are taking heed of your advice. thanks in anticipation :)

[@chrisbourne-retirementplanner]

Yes - all of my clients who are in retirement are financially free. The clients themselves have to put themselves in that position of course; my part is giving them the confidence of knowing they can be financially free for the rest of their lives. That comes through a combination of goal setting, careful asset allocation and tax planning through cash flow modelling.

[@minimad8793]

@@chrisbourne-retirementplanner I guess the goal setting is the first and foremost thing to sort out. fairly new to investing in myself for myself so getting to grips with the basics. I think I have started well enough by investing in passive stocks so yeah, will take onboard your careful asset allocation and will look for that cash flow modelling stuff online. Thanks again

[@russtaylor8367]

Hi Chris, Great Channel. I would really like to hear more on your view of the mechanics of the LTA. If I was just over the LTA at 55 years old and Chrystalised 100% paid the LTA tax. It was my belief that I could then grow and consume my drawdown fund above the LTA until 75. At this point I would ensure I was at or below the LTA to avoid the increased tax. Be great if you were able to cover this on a future video. Many thanks 👍

[@chrisbourne-retirementplanner]

Hi Russ. Yes at 55 you can fully crystallise. If your drawdown pot grows to more than it was when first crystallised, after taking account of all of your income withdrawals, there will be another LTA tax charge on the excess.

[@russtaylor8367]

@@chrisbourne-retirementplanner thanks Chris, so for example if every year from 55 to 75 the drawdown account grows by £40k and I take that £40k each year, i only move out of standard income tax if I have more than the LTA on my 75th birthday?

[@nickfifield1]

Please can you provide another example for high earners, and high withdraws in retirement .

[@torus186]

I did wonder why the government just changed the 45% tax threshold to £125,140, it seemed a strange amount, Now I know why thanks to you, my sad life is now a little completer.

[@bigupthebeast]

Take your max tax free cash every year from the minimum age spend it on nice things keep paying 40 k a year in contributions after you’ve carried forward max simples its not rocket scence

[@chrisbourne-retirementplanner]

What do you mean by your max tax free cash every year though Jim?